Download Middlemen and Distribution Channels

Distribution
Sanjeev Varshney
Middlemen and Distribution
Channels
• A middleman is a firm that renders
services related directly to the sale and/or
purchase of a product as it flows from
producer to consumer.
– Merchant middlemen take title to products.
– Agent middlemen do not take title to
products, but arrange the transfer of title.
– Middlemen serve as purchasing agents for
their customers and as sales specialists for
their suppliers.
Channel Members
•
•
•
•
•
Distributors or Stockists
Carrying & Forwarding agent
Wholesalers
Dealers/Retailers
Brokers
Classification of Channel Members
Title of Goods
Transferred
Titles of Goods Not
Transferred
Redistributors
Distributors
Carrying & Forwarding
Agent
Selling to End
Consumers
Retailer
Agent
Role of the Marketing Channel
(manufacturers viewpoint)
• Offers manpower and physical facilities
• Provides personal selling, advertising and
display to aid in selling
• Interprets consumer demand and transfers this
information back
• Breaks the bulk
• Offers storage
• Shares risk of the manufacturer
• Information provider of all other sought
Role of Channel (consumers view
point)
• Product decision
• Brand decision
– Consideration set formation
– Information search
– Evaluation of alternatives
• Purchase
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–
–
–
Form utility
Time utility
Place utility
Possession utility
Functions to be performed
•
•
•
•
•
Prospecting
Promoting
Bulk breaking & assortment
Service
Feedback
Information Flows
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Designing a Distribution Channel
Specify
Select
the role of
type of
distribution
distribuwithin the
tion
marketing
channel
mix
Determine
appropriate
intensity
of distribution
Choose
specific
channel
members
WELLDESIGNED
DISTRIBUTION
CHANNEL
Copyright © 1997 by The McGraw-Hill Companies, Inc.
Consumer Decision Process & the
Role of Channel
Decision Process
The role the channel can play
Picking/Impulse
Displaying the brand ensuring visibility
Variety seeking
Brand enters the consideration set through the
process of recognition (merchandising & display)
Habit
Supplement the buyers evaluation through testimonial
based POP advertising
Sub-contracting
Increase the credibility by acquiring technical skills
Extended problem
solving
Brand enters the consideration set and also help in
information search and evaluation by increasing the
credibility by acquiring technical knowledge
Framework for Designing the
Channel Objective
Variables
Dimensions of the Channel
Objective, which is likely to be
influenced
Consumer
Role of the channel in decision
making
Positioning
Type of outlet
Company norms
Market orientation
Minimum standards
Middlemen service norms (push
vs pull)
Exercise
• A company is planning to launch a new
product. There are no substitutes available in
the market. What should be the distribution
objective
• A company is entering into a already crowded
market but with some enhanced features. What
should be the distribution objective
• A company is entering into a product which is in
growth stage. Company has developed a new
cheaper production technology than the
competitor and thereby plans to launch the
product at a price lower than the competitor.
What should be the distribution objective.
Major Channels of
Distribution
• For distribution of consumer goods, five different
types of channels are widely used.
• Business goods are normally distributed through
four major types of channels.
• There are only two common channels of
distribution for services.
• Some producers are not content to use only a
single distribution channel and use multiple
channels.
• Multiple channels can aggravate middlemen
and cause conflicts in the channels.
Major Distribution Channels
PRODUCERS OF CONSUMER GOODS
Agents
Merchant
wholesalers
Retailers
Retailers
Agents
Merchant
wholesalers
Retailers
ULTIMATE CONSUMERS
Retailers
Major Distribution Channels
PRODUCERS OF BUSINESS GOODS
Merchant
wholesalers
(industrial
distributors)
Merchant
wholesalers
(industrial
distributors)
Resellers
BUSINESS
USERS
Agents
Agents
Merchant
wholesalers
(industrial
distributors)
Major Distribution Channels
PRODUCERS OF SERVICES
Agents
ULTIMATE CONSUMERS OR BUSINESS USERS
Multiple Distribution
Channels
• Some firms choose to use two or more
channels of distribution
• They are used when:
– the same product is sold to business &
consumer markets
– the producer has unrelated products
– the buyers are of different sizes
– geographic concentration differs across parts
of the market
Vertical Marketing Systems
(VMS)
• Has become the dominant form of channel
• High degree of coordination and control
– Corporate VMS - common ownership of
successive channel levels
– Contractual VMS - contracts between channel
members
– Administered VMS - market power of one or
more members, or willing cooperation of
channel members
Factors Affecting Choice of
Channels
• Market Considerations
– Type of market
– Number of potential customers
– Geographic concentration of the market
– Order size
• Product Considerations
– Unit Value
– Perishability
– Technical nature
Factors Affecting Choice of
Channels (Con’t.)
• Middlemen Considerations
– Services provided by middlemen
– Availability of desired middlemen
– Producer’s and middleman’s policies
• Company Considerations
– Desire for channel control
– Services provided by seller
– Ability of management
– Financial resources
Marketing Channels &
Customer Value
• Product benefits (Quality, assortment &
form)
• Service Benefits (after sales service,
availability & delivery, transaction
services)
• Image benefits
• Company benefits
• Cost efficiency
• Competitive advantage
Determining Intensity of
Distribution
• A firm must decide on the appropriate
intensity of distribution for its product.
• Intensity is actually a continuum, but three
categories are normally used:
– Intensive
– Selective
– Exclusive
Conflict and Control in
Channels
• Channel conflict exists when one channel
member perceives another to be acting in
a way that prevents the first member from
achieving its distribution objectives.
– Horizontal Conflict
• Middlemen of the same type
• Different types of middlemen on the same level
– Vertical Conflict
• Producer versus wholesaler
• Producer versus retailer
Who Controls Channels?
• Sources of power in distribution channels
– Expertise
– Rewards
– Sanctions
• A channel viewed as a partnership
– Collaborative planning
– Relationship marketing
Some of the criteria's to appraise
Channel members
•
•
•
•
Sales Performance (against targets)
Servicing
Financial Discipline
Inventory Maintenance (no more a very
imp criteria)
• Personal Commitment & involvement
• Adherence to norms (infrastructure and
people) and reporting structure
Channel Evaluation: Concept
• Includes both
– Financial Performance measures
– Contribution to consumers demand
Dimensions of channel
performance measures
• Effectiveness
– Delivery (how the channel meet demands)
– Stimulation (how well it stimulates latent demand)
• Efficiency
– Productivity (measure of physical efficiency)
– Profitability (measure of financial efficiency)
• Equity
– Service to problem ridden market or disadvantged
market
Profitability Analysis
NMC =
Volume X [ End user price X (1-%channel
cost)-COG]-Marketing Expenses
• Direct channels have higher margin per
unit but incurred higher marketing
expenses
• Indirect channels have a lower margin per
unit but lower marketing expenses
Supply Chains Streamline
Distribution
• Reduce number of
transactions
• Increase value for
consumers
• More efficient and
effective
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Supply Chain Management
Affects Marketing
• Fulfilling delivery
promises
• Meeting customer
expectations
• Reliant on an
efficient supply
chain
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin